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Retailers Confront The Secondary Market

By now it’s a familiar scenario: a retailer receives a small allocation of a limited-release whisk(e)y, sells it at the appropriate retail price, and then sees the product sold online at double or more the original price. In April of last year, social media giant Facebook moved to shut down groups that fostered this illegal practice, as secondary market sales of whisk(e)y and craft beer were flourishing on the site and reaping tidy profits for sellers of highly sought-after bottles. The Facebook effort helped stem the trend for a while, but when demand is high and supply is short, sellers will find a way. Prominent retailers say the secondary market continues to thrive, despite the efforts to stop it.

“Anything in demand will create a furor,” says Jim Shpall, CEO of Colorado’s Applejack Wine & Spirits. “We see it now with high-end Japanese whiskies and Bourbon brands like Pappy Van Winkle. To the extent that retailers price them reasonably, there are people who find these products and take advantage of market conditions.”

Ryan Maloney, owner of Julio’s Liquors in Westborough, Massachusetts, says the situation is annoying, although not overly detrimental to his business. “This trend flies in the face of fair play,” he says. “Liquor is a controlled substance. We have to abide by many regulations, including pricing, insurance and checking ID. People selling on the secondary market have none of those costs, but are benefiting from supply and demand.”

Maloney adds that secondary sellers aren’t the only ones guilty of price gouging. “In all fairness, a lot of liquor stores are playing this game too,” he adds. “We get full margins for those types of items, but I see other retailers pricing these products for the same amount as the secondary market—or in some cases more.”

Minneapolis retailer Surdyk’s found out the hard way that upping prices can have repercussions. A few years ago, the store sold Surly Brewing Co.’s Darkness imperial stout for the suggested retail price of $19.99 a bottle. Owner Jim Surdyk was later dismayed to see Craigslist sales of the same product for $60 a bottle. Fighting back, he priced the brand at $37.99 the following year. Both Surly Brewing Co. and local craft beer aficionados reacted with a negative social media outcry against the store. “Needless to say, we were in the doghouse with the craft beer crowd for quite some time,” says Surdyk. He says the store no longer strays upward from suggested retail prices.

Retailers aren’t looking for a crackdown from state authorities, but some are hoping for a more proactive approach from suppliers. Maloney, for example, believes suppliers should “take a much more active role” in determining allocations. “There’s a difference between a retailer getting full-margin for a product and a retailer who gouges on price,” he notes.